TLDR
- DraftKings shares have fallen more than 40% so far in 2026, recently closing at $20.50.
- Morningstar gives the stock a five-star rating and a $39 fair value estimate.
- The company’s core sportsbook handle has grown by double digits in recent months.
- Competition from prediction markets has pushed sportsbooks to spend more.
- Two of three appeals courts have ruled against prediction market companies on sports contracts.
Shares of DraftKings have dropped more than 40% so far this year. Investors have been weighing higher spending at the company and growing pressure from prediction markets.
Still, one research firm believes the stock is trading well below what it is worth. In a new report, Morningstar said it views the sports betting company as undervalued.
Morningstar analyst Dan Wasiolek said DraftKings’ core business remains strong, even as competition with prediction markets heats up. That competition has forced DraftKings and other sportsbook operators to spend heavily.
Sportsbook Handle Keeps Growing
Wasiolek said DraftKings’ core sportsbook volume, known as handle, has grown by double digits in recent months. Handle is the total amount of money bettors wager.
“But shares have not responded, driving our view that investors could await court rulings for clarity,” Wasiolek said.
He also said the NBA’s recent crackdown on some player proposition markets will not hurt demand for sports betting. DraftKings and rival FanDuel are both following the new NBA rules.
The timing matters. The NBA regular season starts October 20, and the league is the second most bet-on professional league in the U.S., behind only the NFL.
DraftKings is usually seen as a growth stock. It is not a value stock in the traditional sense, but Morningstar believes it may offer value after this year’s decline.
Morningstar gives DraftKings a five-star rating, which means the firm sees it as deeply undervalued. It also rates the stock’s uncertainty as “high.”
The firm set a fair value estimate of $39 per share. The stock recently closed at $20.50.
“Investors are pricing in a dire environment, which could cap shares until there is regulatory visibility on prediction markets, perhaps in 2027,” Wasiolek said.
Morningstar expects DraftKings sales to grow 8.1% per year from 2026 through 2035. It forecasts earnings before interest, taxes, depreciation and amortization, or EBITDA, to grow 24.9% per year over the same period.
Courts Could Decide the Path Forward
Prediction market companies have been offering sports event contracts. They argue these contracts are derivative swaps and should be regulated by the federal government, not by states.
In 2018, a Supreme Court ruling gave states the power to regulate sports betting. Wasiolek noted that two of three appeals court rulings have disagreed with the prediction market companies’ position.
Many in the legal and investment communities believe it would help DraftKings if prediction markets lost the ability to offer sports contracts. The company could then focus on its core sportsbook business instead of spending money on its own yes/no exchange.
The U.S. Supreme Court does not currently have a prediction market case on its docket. However, many expect that could change as soon as 2027.
